KEY POINTS:
The New Zealand dollar powered to a five-month high today on the back of the Reserve Bank's hawkish comments yesterday and a return of investors' appetite for risk.
It closed on US77.82c, a level last seen in early July when the kiwi was coming off its record run above US80c following Reserve Bank intervention.
The kiwi also traded around a four-month high against its Australian counterpart. It closed on A88.64c having closed yesterday at A88.31c.
Yesterday's strongly worded Reserve Bank statement, when bank governor Alan Bollard warned interest rates would have to remain high for longer to contain inflation, underpinned the kiwi.
A strong day on equity markets also helped as investors' appetite for risk was replenished.
Dr Bollard's commentary contrasted with the Reserve Bank of Australia which the day before issued what was perceived as a dovish commentary.
Other central banks around the world, such as the Bank of England and the Bank of Canada have cut their rates.
ANZ bank said it was difficult to fight the relative attractiveness of the NZ dollar.
"Risk appetites are back and the carry trade is being put back on, sending the NZD higher on the back of the RBNZ's hawkish rhetoric," ANZ said.
In carry trades investors borrow a low interest rate currency such as the yen to invest in higher yielding assets such as the NZ dollar.
The NZ dollar also lifted overnight against the European and Japanese currencies.
The trade weighted index closed on 72.21 from 71.58 yesterday.
Among the major currencies, the euro rose against the greenback and the yen as European Central Bank President Jean-Claude Trichet's hawkish comments on inflation raised the spectre of an interest rate hike in the eurozone.
Trading was light as market players refrained from taking big positions before the US jobs data and as year-end approaches.
Interest rate futures show a roughly 40 per cent chance that the Fed will opt for a bigger slash in rates from the current 4.5 per cent at Tuesday's policy meeting.
The Fed has already cut rates 75 basis points since September to help relieve the market strains from this year's credit crunch and the potential economic fallout.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US77.82c US77.08c
NZ dlr/Aust dlr A88.64c A88.31c
NZ dlr/euro 0.5312 0.5276
NZ dlr/yen 86.62 85.54
NZ dlr/stg 38.41p 37.99p
NZ TWI 72.21 71.58
Australian dollar US87.80c US87.30c
Euro/US dollar 1.4633 1.4609
US dollar/yen 111.33 110.99
- NZPA